The UK’s payments industry is under threat from proposals designed to tackle fraud, the main payments body has warned.
In a letter to Lord Dominic Johnson, minister of state for investment, the Payments Association – which represents over 300 payments firms – warned “some regulators regulate in a way that stifles the growth of our industry.”
“As a result the UK becomes a less attractive destination for investment and some companies leave our shores entirely,” the letter said.
In particular the letter raised concerns with proposals to tackle authorised push payment (APP) fraud. APP fraud, which totalled £485m in 2021, is when a customer is tricked into authorising a payment to an account controlled by a criminal.
Under proposals being considered by the Payment System Regulator (PSR) banks and payments firms will be forced to reimburse victims of APP fraud within five business days.
The letter warned that “this might create more fraud than it reduces”, either by incentivising people to act carelessly or encouraging ‘first party fraud’ – when two parties intentionally arrange a friendly scam to double their money.
The PSR’s proposals will see reimbursement split equally between the sending and receiving bank. The letter cautioned that account issuers could become more cautious in opening accounts for more vulnerable customers in order to limit exposure.
The Payments Association also drew attention to the inaction of social media firms on fraud, even though the vast majority of fraud takes place online.
This issue has been highlighted by many banks, who point that around 80 per cent of APP fraud originates through online purchases.
“Without involving social media giants, we will not stop most APP fraud at its source,” the letter said.
Plans to force big tech firms to reimburse fraud victims as part of the government’s strategy were controversially watered down this year.
While the Online Safety Bill will put more requirements on big tech firms, the Payments Association said the plans did not go far enough.
“These latest anti-fraud policies, and many other regulations recently proposed and adopted by regulators of payments, will inflict damage on companies in our industry,” the letter concluded.
A PSR spokesperson said: “The steps we have announced will establish a clear set of minimum standards of behaviour and encourage all payment firms to step up their efforts to prevent fraud from happening in the first place.
“We’re confident our reimbursement requirements will drive the right consumer outcomes while encouraging people to still remain cautious – including through the potential for financial firms to apply a claim excess and introducing a maximum level of reimbursement,” they continued.